One reason to reject the IPPR report is that they're using the wrong numbers

The IPPR has that economic justice report out telling us that we've simply got to uproot free market capitalism because it shafts the workers. Any of which assertions could be true of course, not that we'd agree. However, trying to support such assertions does require the use of the correct numbers. Which isn't, to put it mildly, what is being done.

A little bit of theory. The national income can be split up into the capital share, labour share, self employed or mixed income and subsidies to production and taxes upon consumption. That labour share has been falling gently in recent decades but it's not the profit share which is rising, instead the other two are. There're more self employed people around and we might well have noted that doubling of the VAT rate since introduction.

Within the labour share we can talk about wages and salaries and then the other costs of employing labour. To which there's an importance. A falling share of wages and salaries is entirely consistent with a static labour share. It would mean that we are loading employers with more costs to employ labour. Say, raising national insurance contributions, insisting upon the funding of pensions, an apprenticeship levy and so on. These are costs of employing labour but not wages and salaries, they're part of the labour share but not of wages.

So, the numbers the IPPR wants us to look at are as that chart above. But that's not the labour share, they've used the ONS figures for wages and salaries. If we actually wanted the labour share figures we should use these numbers here.

With an index starting at 100 in the year 2000, wages are up at 166, labour costs at 171.4 and other costs per hour at 211.9. That is, one good reason why wages haven't been rising along with the rest of the economy is because we've been loading other costs onto the price of employing people. Those costs coming out of the labour share.

We're quite willing to agree that the labour share has indeed fallen in recent decades. Also that the wage share has fallen more recently. But we do think it's worth insisting on using the correct numbers so as to examine how an why this is. Barring that mid-70s slump in the profit share there's nothing odd about that cut of the economy today. Thus the solution to that falling labour share might well not be in the profit share. Could, for example, be over in the VAT area, just as a perhaps. Similarly, the wage share might not be to do with the profit share but with the non-wage labour costs imposed by successive governments.

Again, while we've very strong opinions on such - to the point of a pantomime "Oh Yes It Is!" - that's not the point we want to underline here. Rather, if we're to investigate we really must, just must, start with the right numbers.

At which point we'd just make a little note. All of the discussions here start with notes about the labour share and often enough and wrongly with the wage share. Then assume that if the workers ain't getting it then the capitalists must be. Why is that? Perhaps because examining the profit share directly wouldn't tell us that same message. Which wouldn't be politically convenient, would it? For if the bosses aren't getting it and the workers aren't then we'd have to do some real work to find out who is, wouldn't we? That's it's government swallowing the economic growth wouldn't accord with a number of narratives....

There's a certain problem with Polly's demand about wealth

We have been telling Polly Toynbee for well over a decade now that Sweden's wealth distribution is more unequal than that of the UK - she won't listen, sadly. It is also quite obviously true that post tax and post benefit incomes in Sweden are more equally distributed than in the UK - although not quite as much more equally as many seem to think. The ginis are around and about 0.25 as to 0.34.

All of which leaves us with a problem with this:

Labour’s sole focus should be closing Britain’s wealth gap

Polly Toynbee

While the super-rich get richer, those left at the bottom are in increasingly dire straits

How can we have a more equal country which is less equal? 

The answer being that we measure the wealth distribution before all of the things we do to correct it, the income distribution after all of those things. And we're never going to get that wealth distribution conversation right until we change the way we measure it.

For we do do a number of things to equalise wealth - the general name for this being the welfare state. It's entirely true that there's pension inequality, some have very much larger private pensions than others. But all gain the state pension which equalises. The wealthy may well have substantial equity in their housing. The receipt of housing benefit, or a below market tenancy, might not be transferable but it is wealth in that same economic sense. But when measuring wealth we only include the private pension or equity, not those public equivalents.

We might think of the Saez and Zucman work on wealth where they capitalise income streams to reach their estimates. Gain £5,000 a year from something and thus it is worth x years times £5,000 as a capital sum. It's a reasonable method too. So, why aren't we applying it to schooling costs? £5,000 a year is a rough guide to what it costs the government to provide free at the point of use schooling. That has a capital value of x times £5,000. A value we don't count.

And the thing is, once we do include all of these things which we do to equalise the wealth distribution we find that we're not in the grip of any explosion in wealth inequality at all. That claimed plague of it being merely an artefact of the manner in which we're not counting what we already do to equalise it.

There is thus a very simple solution to that demand that we've got to do something about wealth. Start counting it properly. Include the value of the welfare state.  Only once we do that can we even begin to discuss whether we should be doing more. Or less, of course.

Let the car take the strain

Autonomous, truly driverless, cars are obviously going to change the transport network. It's a fun parlour game to try to work out which parts it's going to kill. Actually, not so much a game given that we've the usual suspects insisting that we must spend tens of billions - if we add up all the schemes perhaps hundreds -  on the rail network. For it's the non-commuting passenger part of that network which is going to be murdered in its bed by that new technology:

Volvo has unveiled a futuristic concept car that it hopes will replace short-haul air travel and introduce new safety standards that could put driverless vehicles on the roads sooner.

The Swedish company’s 360c autonomous vehicle does away with the steering wheel and uses the extra space created by electric drive systems to create different cabin layouts.

These can be configured into modes such as commuting, mobile office, entertainment and sleeping.

With a flat-bed installed, Volvo believes its cars can replace short-haul air travel, targeting flights of up to 400km - about the distance from London to Newcastle.

Short haul air travel might well suffer. But it's going to be the train taking the strain. 

Those commuter lines in and out of London, say. No, we're not going to start moving a million and more people a day on the roads, rail has its place there. Long distance travel is still going to be by air whatever the promoters of things like the TGV insist. But that part of the transport network where rail is in competition? Travel - for business and pleasure and of people not freight - in the tens of miles to the hundreds?

Assume, for a moment, that the advertised technology works. What are people going to prefer, that public option of the feeder line to the terminus, change, the fast train to wherever, that switch to local transport again?  Or what is, effectively, one's own private train carriage able to transport you point to point anywhere on Britain's road network? 

Well, quite, and the reason we're spending tens of billions (before the inevitable cost overruns) on HS2 and the like is what? Investing in a soon to be entirely redundant technology?

The argument in favour of government investment is that it will invest in things the private sector won't. It's also the argument against it as well.

Those spiralling costs of new drugs

It's not uncommon to hear people telling us that new drugs cost a lot per treatment. Therefore that drug development system is broken. The truth being that it's all rather more complex than that. Or even simpler. The drugs we're developing treat ever fewer numbers of people as we move down the list of problems to be solved. Thus the costs of the development need to be carried by ever fewer treatments. The cost per treatment is thus, whatever our financing system, going to be higher.

There is no way out of this, no way at all. 

The treatment called CAR-T therapy - has been hailed by scientists as one of the most significant breakthoughs in cancer for decades.

It works by taking a patient’s own white blood cells, and re-engineering them to fight cancer, , before re-injecting them into the body, where they multiply.

Some studies have found that up to nine in ten patients with little hope of survival went into remission after being given such therapy.

The deal struck between Novartis and the NHS is one of the fastest funding approvals in the history of the NHS, and comes 10 days since the drug was licensed for use in Europe.

The treatment would cost a patient around £280,000 privately....

£280k is a fair chunk of change in anyone's money. But why so much?

Around 30 children a year are expected to be given the CAR-T treatment

It's possible to argue - whether we include the opportunity costs of capital for example - but the development of a new drug through to approval costs some $800 million to $2 billion. The current funding system means that the developer has some 10 years after approval of patent protection to try and get that back. The fewer people the drug is given to the more each treatment will cost to try to recoup.

But note that this problem doesn't go away if we change the funding system. It still costs that $2 billion to develop a drug. The cost per treatment is therefore higher, to recoup that investment, however and whoever pays for the development. Even if it's all just tax funded the taxpayer is still spending $2 billion to treat 30 people a year (yes, obviously, the development is one once globally but still the logic stands).

The expense of new drugs is about the expense of developing new drugs. Changing who or how pays doesn't change that in the slightest.

Freedom's Fighters with Ruth Lea

In this month's Freedom's Fighters, Dr Pirie interviews the erudite Ruth Lea as he looks back at her decades of campaigns for common sense and liberal values.

Does the NHS expand to absorb the funding available?

The cost of the NHS has risen faster than inflation for good reasons and not so good. Innovation has brought shorter hospital stays, local in place of total anaesthesia, less intrusive  surgery and more effective medication.  Shouldn’t the total cost be going down rather than up?

Part of the increase has been at the expense of adult social care, whose funding via local authorities has been cut in real terms. Even so, The King’s Fund reported that: “the number of general and acute beds has fallen by 43 percent since 1987/8, the bulk of this fall due to closures of beds for the long-term care of older people.”  It is amazing the local authorities have been able to cope thus far. 

The Adult Social Care Green Paper will be delivered over a year late, coming out finally this Autumn. Of course, no explanation has yet been given. Cure and care need to be considered together but there is no sign they will be.

This blog has been prompted in particular by a letter from the Rev. Roy Allison who won the 1995 Adam Smith Institute competition the “Economy in Government.” It attempted to quantify the savings available from unblocking NHS beds. Eamonn Butler (the ASI’s Director and Co-Founder) is quoted as having said: “I have no doubt that the Rev. Allison’s proposal will be adopted.” Turns out, fat chance.

The Office of Health Economics celebrated the NHS’ 60th birthday by debunking a couple of myths:

Firstly, it shows that the UK is not a low spender on public health. Of the top 21 OECD countries only France and Germany spend more as a percentage of their GDP.

Secondly, up to 35% of the cost of the NHS does not go into primary (GPs) or secondary (hospitals) at all: “In 2006/07, the latest data available, Hospital services gross expenditure accounted for 43% of NHS cost, while the Family Health Services (FHS) accounted for 22%. This compares to 52% and 36% respectively in 1949/50, equating to a 5-fold rise in hospital expenditure per capita and 4-fold rise (in real terms) in NHS expenditure per capita over the same period.” (p.22).

The figures change from decade to decade but a large proportion of NHS England’s funding does go to the free individual health treatment for which it was set up. Supervisory boards and consultants alone cost £139m. The NHS should be streamlined to deal only with treatment and cure, leaving care, and better funding, in the hands of the specialists. At the same time, the variety of adult care services, mainly the elderly, mentally ill and those with learning difficulties, need some sort of framework to promote best practice and efficiencies. This is why we need a Royal Commission, which would be only the second in 70 years, or equivalent. For both cure and adult care.

This blog has thus far omitted the third big spender: public health. This too has a complex web of goals and management. Some lie within hospitals, others in County Councils, NHS Regions and Public Health England which answers directly to the DHSC. Norfolk’s approach, and other local authorities are similar, in that they ludicrously dabbling in every aspect of life: healthy food, drinking, smoking, driving, diseases, sex, home and school visiting, and “integration, prevention and reduced inequalities and priorities of mental health, dementia, early years and obesity.”

Government should indeed make us at least aware of the consequences of taking detrimental life choices. And government needs to prepare for, and deal with, epidemics. But that needs one small department, not armies of bureaucrats supposedly “working with” each other. For a start, public health responsibility should be withdrawn from the NHS.

In addition, with the declining number of beds to attend, one would expect the number of nurses have declined pro rata. In the past thirty years, bed numbers shrank by 43 percent while the number of nurses, visitors and midwives has grown by 14 percent (280k to 319k) – and that is ignoring the 30k primary care and district nurses where numbers have been stable. At the same time, some hospitals have failed to take proper care of patients due to a shortage of nurses and/or their supervision and training. The Commission needs to take a hard look at this anomaly along with other areas where efficiencies have been promised but not delivered.

The most fundamental instinct of any organisation is to grow. The NHS is no exception. With 1.7m employees in the UK (1.2m in England alone) unbounded growth will prove too much for the economy to sustain. On the one hand, justified demand for treatment and cure must be met. The NHS has a fine record on that. On the other hand, we cannot expect it to make the savings that would undermine its claims for more funding.  Only an external review can do both.

A start can be made by shedding non-core NHS responsibilities: namely adult care, public health and top-heavy supervision. A streamlined NHS focused only on treatment and cure would be in a stronger position to cross-fertilise best practice and improve productivity.  And continue to deliver what it was created to do.

Malthus was both right and wrong but we've solved that problem anyway

As we might have noted before the Rev Malthus was absolutely right about all of history until he sat down to write and absolutely wrong about near all that has followed. Population growth can indeed - and often will - outstrip food production growth yet this is a problem that capitalism and industrialisation solve. Rich people have fewer children:

South Korea’s fertility rate is expected to fall to an all-time low this year, setting the country up for a host of problems including underfunded pensions, expanding debt and economic decline.

The average number of babies born per woman of reproductive age is due to be as low as 0.96 this year, falling below one for the first time in history, according to a study commissioned by the Chosun Ilbo newspaper.

That sort of fertility rate pretty much solves the overpopulation concern. And while that rate is alarmingly low by anyone's standards it's also true that every rich country, absent immigration, is below the 2.1 which is replacement level. The world is expected to be below it when he world is as rich then as we are now, around 2100 or so.

It's not even access to contraception which drives this - although obviously those who wish to use it should be able to buy it if they so wish. It's desired fertility which falls like a stone.

We know how to solve overpopulation, that's one through economic growth. You know, that thing caused by capitalism and free markets? Or as we might put it, economic freedom is the most effective contraceptive we know of yet. 

The terror of people being employed where they are productive

The Telegraph has uncovered quite the horror of our age:

Britain faces an artificial intelligence “brain drain” as Silicon Valley raids its top universities for talent, data compiled by The Telegraph shows.

Around a third of leading machine learning and AI specialists who have left the UK’s top institutions are currently working at Silicon Valley tech firms.

More than a tenth have moved to North American universities and nearly a tenth are currently working for other smaller US companies. Meanwhile just one in seven have joined British start-ups.

People are being employed where they are the most productive. Given the global nature of the tech business the where where this is doesn't matter in the slightest. Thus the brightest minds being allied to the deepest capital pockets are off being productive - exactly the result we desire.

There is another point here too. The argument in favour of the universities - government funded of course - doing all the research is that it's all so long term, so much of a public good, that the private sector, private actors, just won't do it. Takes far too long, it's all far too risky, to do that research in a private company. 

Now we've the complaint that everyone capable of doing this research is in a private company - wherefore our universities now? Well, clearly, the argument that only universities, only the government, can do that research has something of a dent in it, doesn't it? 

And we do seem to have entirely demolished the idea that the universities must have more money in order to attract those brains to do the research that the private companies are already handling rather well.

In more formal terms the argument is that the private sector won't produce public goods therefore the public sector must. That doesn't then mean that the public sector must be funded to compete with private - it means that if the private sector is producing the public goods then we don't need the public option at all.

Help To Buy - why politics, again, isn't the way to run things

It was never a very sensible scheme to start with:

The government's Help to Buy scheme is facing the axe amid concerns it is helping wealthier households and pushing up house prices.

The Telegraph understands that ministers are planning a “fundamental review” of the policy that could see it replaced with a scheme that is "more targeted on those it is meant to be helping."

Subsidising the purchase of something you've already decided is too expensive is not the way to do it. For you're just adding more money to the flow chasing that already too expensive thing.

And yet it was done - why? Because political pressure to do something and logic to do the right thing aren't - as we can note - the same thing. House prices were/are such that people find it very difficult to get on the ladder. Reducing the price to be paid would help but that might mean confronting one or other shibboleth. Like allowing people to build houses people want to live in where they'd like to live instead of where the planners damn well tell them to.

Thus we get policy which not just doesn't quite address the justificatory problem given but is entirely counter-productive.

The point being that politics isn't a good way to be managing things. For what bubbles to the top of that political do something list, what politics suggests, or allows to, be done,  tends not to be what either needs or should be done. Better instead to use politics to decide that absolute minimum of things which can only be dealt with in that manner and leave the rest of life to us the people to deal with in a very much less inefficient manner.

Venezuela Campaign: a country in a death spiral

When people abandon a country in droves, it is rarely a sign of a healthy economy.  2.3 million Venezuelans (7% of the population) have fled poverty and economic despair, and another 2 million are predicted to leave over the next year and a half. For scale, imagine if half of London’s population left the UK, and the other half were about to leave. And we may be underestimating the crisis, since the situation is rapidly becoming nightmarish.

Hyperinflation has risen above 61,000% and is predicted by the IMF to reach 1,000,000% by the end of the year. When inflation runs this high, the lag between tax assessments and payments means that inflation wipes out the real value of taxes. This forces the government to print yet more money in a hyperinflationary death spiral. The recent botched operation to remove five zeros from banknotes has only caused further panic and confusion among the population.

Escaping Venezuela is increasingly difficult. Public transport has ceased to operate, and private cars lack petrol or can’t be repaired due to an absence of affordable spare parts.  Walking to the border is almost the only option, difficult for the old and sick or those with small children. Moreover, neighbouring countries have started to insist that Venezuelans should present passports. However, this is no longer possible because Venezuela’s passport bureau has run out of materials to produce them.

One could say “could the last person to leave please switch out the lights,” but that won’t be necessary as the electricity network is falling apart with blackouts becoming ever more frequent. As public services grind to a halt, so does the country. In Caracas, there is rarely running water available, which Bloomberg’s correspondent has described as “a man-made drought that is arguably the most equalising disaster the government has ever managed to engineer.”

Some Venezuelans suggest that the government would prefer most citizens to leave, as this will help it stay in power.  Fewer people means fewer protests, and if political opponents are no longer in the country, they cannot campaign against the regime. The regime’s food distribution network, or CLAP, assures the loyalty of many poor Venezuelans. Meanwhile, the regime’s leaders allegedly siphon off money for themselves from state oil operations, regardless of its effect on the country.

What should the world do when a country’s leadership steers it off a cliff? Must we wait until the country crashes at the bottom? Venezuela is certainly already in free fall.  The British Government must be proactive both in addressing the humanitarian crisis and in working with Latin American countries to try and help the Venezuelan people find a new leadership dedicated to the welfare of the people.